Investors are giving shares of Keurig Green Mountain (GMCR) the cold shoulder The stock is down 36% this year and is the worst performer in the Nasdaq 100 Index, as tracked by PowerShares QQQ (QQQ), even as U.S. stocks hover near record levels.
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However, Wall Street may be too cool on the maker of the Keurig coffee brewer and K-Cups, so says the team at Morgan Stanley (MS) which recently described the valuation on the stock as “highly compelling.”
In a recent note, analyst Matthew Grainger acknowledges the stock has been hammered in part because of two back-to-back quarters of downward earnings guidance but sees better days ahead for the business in the next few quarters. Improving results may help return the stock to the $130 level in his opinion, a 55% increase from the current $83 a share level but still lower than the record of $158.87 reached in November 2014.
Keurig’s challenges aren’t lost on President and CEO Brian Kelly. During the company’s earnings call in May, he explained the company still had work to do in convincing more consumers to adopt the new Keurig 2.0 after a “transition that was particularly complex.” Many consumers did not understand the system brews most brands not just Green Mountain or Keurig which Kelly described as “consumer confusion around pod compatibility.”
A Keurig Green Mountain spokesperson told FOXBusiness.com, “We continue to provide consumers with convenience and choice and are planning to reintroduce a My K-Cup accessory for the upcoming holiday season, enabling consumers to brew any coffee they choose in their Keurig 2.0 brewer.”
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Kelly is optimistic about the forthcoming Keurig Kold system due out this fall that will allow consumers to make cold carbonated beverages. Partners include Dr. Pepper Snapple Group (DPS) as well as Coca-Cola (KO) which holds a 10% minority stake in the company. Sodastream International (SODA) makes a similar product.
Also notable at Keurig is the string of changes underway in the executive suite. Peter Leemputte will take over as CFO on August 17. As the former CFO of Mead Johnson Nutrition Company (MJN) he has a solid reputation as a good communicator with the Wall Street community as noted by Morgan Stanley. Other recent key hires include Chief Marketing Officer Mark Baynes, who spent seven years at Kellogg (K) and Chief Technology Officer, Mark Choe who joined from Whirlpool (WHR).
Despite the new team and new initiatives as well as a stock that is potentially cheap, “sizeable downside risk remains” according to UBS, which warns the shares could breach the $70 level.